How would you handle this?

[RightOn]

Taxpayer's family had a rental property. In year 2011, she received $600 per month as 'distribution'. She did not need to pay for any expenses. She just pocketed the $600/month and left everything else to the other members of her family to take care. Another issue is that her name was added to the title of the property on 7-1-2011. So she was not an owner of the property before 7-1-2011. How would you report it?

I am thinking to report the $7,200 ($600/month) as her rental income. Since she did not pay for anything, there would be no rental expenses. However, she would start claiming depreciation expenses on 7-1-2011 since she became an owner of the property on that date.

Opinion?

[taxea]

First I would have chosen a title for the post that gave a clue to the question.

She needs to be advised that it is in her best interest to have a written agreement with the other owners that details how the income and expenses are going to be divided, who is going to manage the rental and the finances, etc.

Then she and you both need to know what her basis in the property is. Her portion of the depreciation whould have to be adjusted for the years that she was collecting rent prior to the depreciation being included in her return.

Was she getting her share of the full rent or were the expenses deducted before she received her share? If they were she is entitled to a deduction on her share of the expenses.

[RightOn]

Then she and you both need to know what her basis in the property is. Her portion of the depreciation whould have to be adjusted for the years that she was collecting rent prior to the depreciation being included in her return. .

Her father gifted 50% ownership of the property to her on 7-1-2011. So her basis is the carryover basis from her father. Do you think differently?

[Nashville]

Basis

Basis on 07/01/11 would be father's basis, or FMV whichever was lower.

As far as reducing the basis for any rent received prior to ownership, I think not. Rent should have been reported as income. If during a period of non-ownership, and there were no expenses, Line 21 "Other Income" would have covered it.

Not having a firm agreement with other owners is a recipe for disaster, in every conceivable way.